Debts pile up, weighing on steelmakers

BEIJING - The first six months of 2014 were not easy for a slowing Chinese economy. For China's steel companies, times were even harder.

Over half of the listed Chinese steel companies saw their debts approach alarming levels in the January-June period, with steelmakers filing their half-year results to stock exchanges by the end of August.

Of all 33 listed steelmakers, 18 firms posted a debt-to-asset ratio higher than 70 percent, with Xinjiang-based Bayi Iron & Steel Co, Ltd was burdened with the highest debt ratio at 86.46 percent, according to their financial statements.

"For steel companies, a debt-to-asset ratio higher than 70 percent means the firm is facing a capital problem," said Zhang Lin, an analyst with lgmi.com, a steel information service website.

Zhang expected the debt problem to worsen for steel companies as the sector tends to make substantial investments that usually takes a very long period to mature.

Even for the best performing steel companies, the debt-to-asset ratio remained above 60 percent, a level Zhang said underlines the hardship of the entire sector.

China currently has 86 steel companies that produced 411.91 million tons of crude steel, 362.02 million tons of pig iron and 552.25 million tons of rolled steel products in the first half of the year, according to data by the China Iron and Steel Association (CISA).

Total debts of the steel sector exceeded 3 trillion yuan ($486 billion) by the end of June, and 43 percent of the total debts, or 1.3 trillion yuan, stemmed from bank loans, the CISA data showed.

Xu Xiangchun, a steel analyst for Mysteel.com, a steel market portal, said Chinese steelmakers had expanded too fast over the past few years but such expansion is mainly driven by mounting debts borrowed from banks and other financing channels.

As steelmakers owe more, banks are more reluctant to make loans to the sector due to the high debt-to-asset ratio, thus squeezing their liquidity, Xu said.

Early in July, the China Banking Regulatory Commission warned banks to be careful about risks in lending to iron ore dealers, steel companies and other sectors experiencing overcapacity.

The China International Steel Congress last month estimated the country's steel industry now has an excess capacity between 180 million tons and 240 million tons.

Charting the right strategies for a leaner, profitable steel industry	Vice Premier stresses financial services to support real economy